How Online Retailers Personalize Prices

By Quentin Fottrell

Travel website Orbitz says that it sometimes shows customers using Apple computers more expensive travel offers than Windows visitors, as the former typically spend 30% more, The Wall Street Journal reports. But that’s just one of many variables sites use to set prices, e-commerce experts say. “It’s common practice for retailers to make offers based on everything from your zip code to the kind of smartphone you’re using,” says Robert M. Weiss, technology practice group at Neal Gerber & Eisenberg, who notes the practice is legal so long as the vendor doesn’t change prices based on race, religion or gender.

The customer’s location in particular has a huge influence on the size and quality of discounts, experts say. For one, if a customer lives near one of the retailer’s warehouses, it will cost less for the company to throw in two-day free shipping. “Retailers know that free shipping is a huge motivator to get people to buy,” says Ashok Narasiman, CEO of Mountain View, Ca.-based e-commerce site Runa.com, which counts eBay among its clients. The climate or weather might also be a factor in snagging a deal: If an online retailer knows you’re shopping from Seattle during the rainy season, it may charge more for raincoats in the same way street vendors raise umbrella prices during a downpour, says e-commerce consultant Bryan Eisenberg.

The sites visited prior to purchase also play a role in the retailer’s price. Online retailers track consumers every move online through their “cookies” – little pieces of code stored on computers or mobile devices. Visiting an online retailer by clicking through an ad may make a discount less likely if the retailer has to pay the search engine for re-directing the customer, Narasiman says. Other sites reserve discounts for new customers only, says Feras Alhlou, co-founder of E-Nor.com, a digital analytics consulting firm in Santa Clara, Ca. “Existing customers need to delete their cookies to see these discounts too,” he says.

Even the words entered into a search engine may impact prices, experts say. If a retailer knows a consumer searched for “size 10 patent leather men’s shoes,” the company might be more likely to give a $10 discount or throw in a free pair of socks, Narasiman says. These are known as “long-tailed” searches, he says. “The more detailed the search, the more likely the consumer will make a purchase,” Narasiman says. He says it costs far more in marketing and advertising to win a customer back if they come to the site and leave without making a purchase. “If retailers feel they’re close to buying but need that extra nudge with the right and relevant offer,” Eisenberg says, “they will do just that.”

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